Republicans constantly try to bring Social Security into ongoing debates about ‘Balanced Budgets’. But they face a fundamental problem with their math. For a variety of reasons, some quite reasonable and others nakedly political (seniors vote) nearly every ‘Reform’ proposal out there promises to hold 55 and older harmless. Meaning you can’t have any more than miniscule effects on Cost projections until today’s 54’s and younger start retiring. Except for a handful of early retirees that event happens 11+ years in the future, which is to say outside the 10 year Budget Scoring window.

You can’t have a fix to a problem scored over 10 years with a solution starting Year 11. Sure the ‘Reformers’ will blather about “Infinite Future Horizons”. But any proposal that spares current seniors from cuts will score close to zero by CBO and JCT. You just have to count years on your fingers.

The Office of Management and Budget annually releases the President’s Budget as a baseline proposal for the next Fiscal Year. If the Congress is in whole or in part in the hands of the opposite party this mostly gets filed away somewhere in a drawer entitled “You Wish”. But it does come complete with a 400+ page supplement entitled the Analytical Perspectives: Budget of the United States which has among a lot of other stuff some comprehensive tables of projections of economic variables going forward. Which variables you can compare directly to those including in the Social Security Annual Reports and more indirectly to CBO’s Budget and Economic Outlook all of which get released around the same time in most years in springtime. I actually haven’t looked at the Tables of the Analytical Perspectives in a few years and thought I could just put up a couple key tables for you all to inspect. And then perhaps compare to the equivalent Tables in the 2014 Social Security Report. Assuming it is ever released that is. So without comment here are two key tables from the Analytical Perspectives, 25:1 which summarizes Receipts and Outlays and 25:2 giving a Summary of Economic Assumptions. As usual you may need to click to embiggen. I will reserve my discussion mostly until Comments but point out that OMB puts its ultimate (i.e. mean) unemployment rate at 5.4% and rates on the 10 year note at 5.1%. Thoughts?

Stay with me here. Because I am almost serious about this proposal. Or at least it highlights the contradictions (while not Heightening the Contradictions).

The Border Crisis: tens of thousands of unaccompanied minors crossing the U.S. border.

Social Security ‘Crisis’: per ‘Reformers’ one that is driven by pure demography – too few future workers to support longer living large cohorts of retireees.

Solution? Keep the kids while excluding the parents. That is launch a campaign in Central America with the following messages:
One. It is very dangerous to send your kids to El Norte. Many of them might die on the way, almost all will be abused and exploited in one way or another, and all at the cost of your life savings and borrowings.
Two. If they manage to make it alive the U.S. will allow them to stay. But will not grant them any rights to sponsor their parents until they are adult citizens who are both financially secure enough to be sponsors and having undergone the naturalization process. Congratulations! Your kids are Americans now. But you may never see them again. Maybe they will write and post pictures on their Facebook walls.

I don’t know whether this will work in stemming the flow. But it might counteract the known sales pitches of the human traffickers that simply getting a kid into America makes them an automatic sponsor.

Turning to Social Security. One of the major contradictions in Social Security projections is that in the face of a declining worker/retiree ratio the Office of the Chief Actuary has consistently projected a drop in immigration in both absolute and relative terms from its peak. But unless you are an outright Nativist this makes little long term sense at all. After all if we need future workers to take care of increasingly aged Boomers where better to find them than overseas? Or better among the pool of new workers graduating from American high schools who arrrived here as unaccompanied children?

Now of course there are lots of missing pieces here, so many that even the outlines of this may seem farcial. And maybe I do have a tongue tucked into a cheek and am engaged on a little ‘epater la bourgeousie wingnutte’. Still there is room for WAY out of the box thinking on a lot of issues, and these two among them.

What does or would it mean to say that Social Security was ‘solvent’? Under the rules that govern the Trustees of Social Security the test for any given year is pretty simple: did or will the year end with all obligations/cost met while still retaining assets equal to the next year’s cost. To determine this you take the year end Trust Fund Balance and divide by Cost to get a Trust Fund Ratio where 100 = 1 year. If the TF Ratio is 100 or above Social Security is solvent for that year, 99 or under not. It is important to note that a TF Ratio under 100 doesn’t mean any change in benefits being paid out, instead benefits can and under current law must be paid in full as long as there are any assets to draw on, that is a TF Ratio greater than 0. Still any number between 0 and 100 is worrisome.

Is Social Security ‘solvent’ today? By this test certainly, at least for the Old Age/Retirement (OAS) Trust Fund, at years end 2012 OAS had a TF Ratio of 391. Has Social Security OAS always been ‘solvent’. Well no, and we can track its performance since 1937 in the following Table for the 2013 Report.Table VI.A1.— Operations of the OASI Trust Fund, Calendar Years 1937-2012
By this simple TF Ratio test OAS was solvent every year from 1937 to 1965 and again from 1967 to 1970 only to fall under the 100 mark in 1971 enroute to its lowest year end point in 1982 at 14. At that point full payments of benefits were at serious risk, literally SOMETHING had to be done. And lo! the Greenspan Commission. More below.

Well I am back at Angry Bear and just getting my feet wet with WordPress, so this first post won’t be ambitious.

The 2013 Annual Report of the Trustees of Social Security was released today Friday the 31st of May. The short take-aways are ‘not much change’ and ‘no news is good news’: date of Trust Fund depletion remaining at 2033 and the 75 year actuarial gap going up from 2.66 to 2.72 which is precisely the structural amount due to the change in actuarial period. (On the other hand the numbers INSIDE that number would repay examination, an exercise for the diligent student.)

For now I am just putting this up for comment, consider this a Social Security open thread.

For those of you who didn’t go the short version of my comment is that the strategy to get major slashes to Social Security and Medicare takes an Seven Step and that this technique is not new and in fact mirrors the original plan for Bush’s Commission to Strengthen Social Security (CSSS) in 2001-2002.

Step one: Get consensus on ‘Crisis’. In this case that current debt growth levels are unsustainable.

Step two: Get consensus that there are only three possible paths out: revenue increases (A), cuts in military and other discretionary spending (B1 and B2), or cuts to non-discretionary spending, meaning Medicare and Social Security (C)

Step three: Having agreed that some combination of A, B, and C is needed set up a Commission with a mandate to propose an up or down vote.

Step four: Committee decides it is unwise to increase taxes during a recession and eliminates (A). Commission further decides that it is unwise to cut defense spending in the middle of two wars eliminating (B1) and that eliminating infrastructure spending or farm supports is both unwise or politically impossible in the current climate (B2)

Step five: Recommend a package of cuts to Medicare and Social Security-C on the basis of shared sacrifice, after all every CD and State has a share of the elderly population.

Step Six: Tell Congress that the statute doesn’t allow them to revisit A or B and then that NOT voting for a C based solution means denial of Steps one and two.

Step Seven: Either get a vote for C or run against opponents as ‘Do Nothing Deficit Deniers”

This was exactly the plan used by the Bush Administration in their Spring 2005 Social Security Tour. Rather than produce a Plan already in hand crafted to specifications, say like Model 2 of CSSS, and have people pick it to pieces, they held it back for a later stage. . So the proposed sequence there was:

Step A: Use Social Security Tour to get consensus on Social Security Crisis
Step B: Use tour to assure everyone that all options were on the table.
Step C: Having gotten consensus from Congress try to find some mechanism to assure a final up or down vote.
Step D: Having secured a vote indicate that any plan MUST comply with the seven existing guidelines of CSSS Guiding Principles to CSSS which bar any tax-based solution and mandate private accounts.
Step E: Remind Congress that they promised an up or down vote and that refusal just meant being in denial of what was conceded in step one and two.
Step F: Either get a vote to ‘reform’ Social Security or use a denial to go for a major victory in the 2006 mid-terms.

In 2005 Bush mostly got stopped at Step A. Since his proposal was narrowly focused on Social Security, a ‘There is No Crisis’ narrative WITHIN the Social Security context was able to get traction. This time we are on a very different track, instead of selling this as a proposal for an ‘Ownership Society’ (where the numbers were pretty easily debunked), it is being sold as a matter of ‘Intergenerational Equity’ and ‘Fiscal Responsibility’. And from that starting point Step one is pretty much in the bag and logic gets you mostly through Step two.

Leaving us where? Well we are within a week of a vote on Step three of the first list and if it passes steps four through seven pretty much follow automatically, they may not work but I would hate to have to bet on it. Meaning that we need to stop Step three by convincing people that Step four is already in the bag. So called ‘Deficit Hawks’ strongly overlap with ‘Tax Hawks’ and with ‘Military Hawks’. Moreover they are largely from farm states and not likely to vote for big cuts there. Which really leaves only one question in my mind, do they stop with proposing big slashes to Social Security, Medicare and Medicaid? Or make new runs at Urban Transit, Community Develpment, or (non-military) Foreign Aid?

I suspect they know better than to get too ambitious and will instead just strike at Entitlements as such.

A last note on Bartlett who revealed too much. In noting that while open to tax increases in principle history showed that while Congress couldn’t help cutting future tax increases back (as with AMT), both Congress and people allowed the benefit cuts in the 1983 Reform to occur on schedule. Since future wage working retirees actually decided to go along with that for the general good while the wealthy would predictably resist paying taxes for that same general welfare that we should just go with the benefit cuts. Because they were ‘doable’.

So workers are ‘doable’. Which puts us ‘working guys’ into a whole new category, except in this case we are paying the Johns.

When the Ryan Roapmap to Prosperity/2013 Republican House Budget was released some otherwise sharp observers like Ezra Klein claimed it just gave Social Security a pass:

Here is Paul Ryan’s path to a balanced budget in three sentences: He cuts deep into spending on health care for the poor and some combination of education, infrastructure, research, public-safety, and low-income programs. The Affordable Care Act’s Medicare cuts remain, but the military is spared, as is Social Security. There’s a vague individual tax reform plan that leaves only two tax brackets — 10 percent and 25 percent — and will require either huge, deficit-busting tax cuts or increasing taxes on poor and middle-class households, as well as a vague corporate tax reform plan that lowers the rate from 35 percent to 25 percent.

Well Ezra got played. Actually Ryan built in language designed to force a ‘reform’ of Social Security IN THE VERY FIRST YEAR. And in a way certain to be based on a cuts only ‘fix’ that by the way can be fully blamed on the President and two Presidential appointees or at worst the ‘bipartisan’ process involved. But understanding why this is so requires some unpacking of the language and the underlying concepts Ryan uses to hide his fingerprints.

(b) POLICY STATEMENT ON SOCIAL SECURITY.—It is the policy of this resolution thatCongress should work on a bipartisan basis to make Social Security sustainably solvent. This resolution assumes reform of a current law trigger, such that: (1) If in any year the Board of Trustees of the Federal Old-Age and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund annual Trustees Report determines that the 75-year actuarial balance of the Social Security Trust Funds is in deficit, and the annual balance of the Social Security Trust Funds in the 75th year is in deficit, the Board of Trustees shall, no later than September 30 of the same calendar year, submit to the President recommendations for statutory reforms necessary to achieve a positive 75-year actuarial balance and a positive annual balance in the 75th-year. Recommendations provided to the President must be agreed upon by both Public Trustees of the Board of Trustees.(2) Not later than December 1 of the same calendar year in which the Board of Trustees submit their recommendations, the President shall promptly submit implementing legislation to both Houses of Congress including his recommendations necessary to achieve a positive 75-year actuarial balance and a positive annual balance in the 75th year. The Majority Leader of the Senate and the Majority Leader of the House shall introduce the President’s legislation upon receipt. (3) Within 60 days of the President submitting legislation, the committees of jurisdiction to which the legislation has been referred shall report the bill which shall be considered by the full House or Senate under expedited procedures. (4) Legislation submitted by the President shall— (A) protect those in or near retirement; (B) preserve the safety net for those who count on Social Security the most, including those with disabilities and survivors; (C) improve fairness for participants; (D) reduce the burden on, and provide certainty for, future generations; and (E) secure the future of the Disability Insurance program while addressing the needs of those with disabilities today and improving the determination process.

Okay a lot to unpack here. In the Annual Report of the Trustees of Social Security one finds three different measures of actuarial balance/solvency: ‘Short term’ (10 years), ‘Long term’ (75 years), and ‘Infinite Future’. Actuarial balance is defined as having each actuarial period show a positive Trust Fund balance with an ending balance equal to one year of reserves. For ‘short term’ the test is stricter, it requires that EACH YEAR in the period show that one year of reserves (Trust Fund Ratio = 100), while long term limits itself to the actuarial period as a whole and its last year. Under current law the Trustees are required to recommend Congress take action whenever the combined Trust Funds fail the short term test. In so doing the Trustees also supply numbers for a cuts only or revenue only fix whether implemented immediately or at the point of actual shortfall but don’t make SPECIFIC recommendations, that being the job of the Legislative branch. The Ryan Roadmap changes this in multiple fundamental ways. Currently Social Security on a combined basis and the Old Age Trust Fund in isolation pass the short term test with some comfort. On the other hand the Disability Trust Fund failed it some time back. Still Congress is not forced to do anything at all but monitor the situation. But if we take the long term test Social Security has been in failure mode each of the last 20 years plus. The Ryan Budget changes current law to make the long term test the ‘trigger point’ and as such mandates that SOCIAL SECURITY IS BROKEN RIGHT NOW. And moreover under this law MUST BE FIXED AND PERMANENTLY THE FIRST YEAR AFTER REPORT RELEASE.That is far from ‘sparing’ Social Security as Klein would have it, Ryan actually puts it at the front of the line for Presidential and Legislative action. Under this language the release of the next Trustees Report after enactment triggers a Sept 1 deadline for a specific set of recommendations to the President, and for the President by Dec 1 to submit those recommendations or others constrained by the language of the act to establish ‘sustainable solvency’ to Congress which in turn starts a 60 day clock for the entire committee process and an ‘expedited process’ to be followed by the House and Senate after that.While there is no strict statutory deadline for release of the Social Security Report prior to the last few years it was released like clockwork on March 30, meaning that this legislation even if enacted wouldn’t normally be triggered until the 2014 Report. On the other hand the SS Report has been released late the last few years and so in Ryan’s dreams this process could be triggered THIS YEAR with action to be completed by next Summer at the latest.And it is at this point that we get the turd in the punchbowl. Under Ryan’s bill the initial recommendations have to be approved by BOTH the Public Trustees. Which if the Public Trustees were selected by some apolitical process under criteria that they actually serve the public interest at large might just be seen as isolating the recommendations from the explicitly political Trustees (under law the Commissioner of Social Security, and the Secretaries of Treasury, HHS, and Labor). But instead the Public Trustees are explicitly political with a legal mandate that they come from different parties. Moreover there is little to prevent a President from choosing an opposite party Public Trustee sympathetic to his goals or perversely choosing a same party Trustee hostile to the majority position of his own party.Which is what we have now. The two current Public Trustees are Charles (Chuck) Blahous, previously Bush’s point man on privatization, for the Republicans and Robert Reischauer for the Democrats. A polite way of describing Reischauer would be ‘deficit hawk’ and ‘entitlements crisis’ promoter. Less polite people (like me) would describe him as Peter G Peterson’s representative to the Social Security Trustees. While Blahous is rather unapologetically employed by the Koch Brothers’ funded Mercatus Institute at GMU. And per Ryan EITHER or BOTH have an effective VETO on the initial recommendations. So while there would not be an official ‘Reischauer-Blahous Commission’ that is kind of a distinction without a difference. Because lets just say it is not hard to predict what the ‘Commission’ recommendations are going to look like, compared to them Chained-CPI would be a love tap. Which may be the plan all along. Not least on the part of the White House.Now reality based Kossacks might well point out that the Roadmap is D.O.A. Which is of course correct. On the other hand just today Dick Durbin, formerly a certain Senator Obama’s mentor, introduced a plan for a ‘bi-partisan’ Social Security Commission that would itself introduce a fact track process eerily similar to the one in the Roadmap. And you don’t have to be a raving paranoid to not predict that Presidential or Democratic Senate leadership appointments to that Commission are likely to resemble Erksine Bowles and Robert Reischauer more than say Senators Sanders and Begich.

‘Rosser’s Equation’ is something between an in-joke and tribute to Prof. Barkley Rosser, Jr of JMU, an economist friend of mine who pointed out a surprising result: real payable benefits after projected Trust Fund depletion and subsequent 25% cut will still be higher in actual basket of goods terms than those of current retirees. This is because the scheduled benefit formula delivers something like 160% of the current benefit and as Prof Rosser pointed out to me long ago 75% of 160%=120%.

The above Exhibit 9 from CBO’s 2012 Long Term Projections for Social Security resolves Rosser’s equation for selected demographic cohorts and income quintiles. And the results show that the retiree born in 1947 who reached FRA (Full Retirement Age) in 2012 would see an initial benefit ranging from $10k to $25k and representing 100% of the schedule. On the other hand the retiree born in 1970 and who will reach FRA at age 67 in 2037, that is after TF Depletion would see initial benefits in 2012 dollars ranging from $12k to $33k.

Now there is no doubt that an overnight 25% cut in benefits at Trust Fund Depletion would represent huge sticker shock for then retirees. And there are very good reasons based in societal equity for scheduled benefits to rise at the real rate the formula delivers. As such we should make every effort to find ways of closing the gap between payable and scheduled from the bottom up rather than forcing scheduled down simply to avoid the shock of of cut. Because the risk is that the ‘cure’ might deliver a worse result in real terms than the ‘crisis’ left unaddressed.

Which is why I have been maintaining for years that ‘Nothing’ IS a Plan. Not as good a plan as it was when Prof Rosser and I started corresponding five plus years ago, circumstances have changed. Still it represents the “First Do No Harm” alternative, after all a check in 2040 20% better in real terms than an equivalently situated retiree gets today doesn’t exactly meet the definition of existential crisis for Social Security.